Examples Of How Some Mid-Market Vendors Might Remain Within The Future Three (Dozen)? Part Three: Made2Manage Market Impact and User Recommendations

Market Impact

While the ongoing consolidation frenzy is by no means the end of smaller vendors, the number of survivors is certainly limited to only a selected few dozen. Amid ongoing seismic consolidation tremors, smaller application vendors are left with only a few choices, such as going (or remaining) private albeit under a wealthy financial backer's wing that is also committed to invest in the acquired technology. Also, there seems to be hope for inventive smaller vendors, which will be focusing on a relatively small, tightly defined market with specific requirements that cannot be met with more generic large' products. Usually, these markets will be too small for the Big Five vendors to want to compete and will also have unique requirements which cannot easily be built into the more generic monolithic products offered by the Big Fives.

These boutique vendors will compete by having in-depth product functions and intimate knowledge of their market place or by offering services (in terms of content and/or location) not available from the Big Five or independent service providers. Smaller manufacturing enterprises are also often more comfortable dealing with a vendor of a size and corporate culture similar to theirs. Examples of these markets can be e.g., fresh meats, dairy producers, Tier 2/3 automotive suppliers, etc. Some of these thriving Boutique Vendors will actually be conglomerates of smaller divisions or vendors with a common owner. These might even be a current mid-range vendor who specializes in a series of smaller markets or even a sub-segment of a Big Five vendor.

This note deals with two notable acquisitions involving smaller vendors:

  • Agilisys International's acquisition of Future Three Software, Inc.

  • Made2Manage Systems Inc. (NASDAQ: MTMS) agreement to be acquired by an affiliate of Battery Ventures VI, L.P. Battery Ventures

This is Part Three of a three-part note.

Part One detailed the acquisitions.

Part Two covered covered the Market Impact on Agilisys and made User Recommendations.

Made2Manage's Case

On its hand, having forever had a size' disadvantage (with mere ~$30 million in 2002 revenues and currently with only over 200 employees and 1,600 customers primarily in North America), Made2Manage had long compensated it by providing a suite of applications with an inherent ease of use and low total cost of ownership (TCO) that small enterprises in its target market desire. From its early days in 1986, the company has put all of its efforts solely into serving discrete manufacturing SMEs in need of enterprise application solutions that are intuitive and, consequently, easy to use and implement.

End users of smaller enterprises have indeed long been impressed with the product's intuitive user interface (UI) featuring the familiar Windows metaphor. Moreover, during last few years, Made2Manage has further evolved from a vendor of traditional MRP/ERP software to a provider of nearly one-stop-shop' enterprise business applications. The company has, gradually, mostly by developing internally, and partly through acquisitions or partnerships, garnered a line of integrated collaborative e-business, CRM, business intelligence (BI), warehousing management system (WMS) and advanced planning and scheduling (APS) components within its core ERP solution.

The vendor has thus not held out on the functionality aspect, but the profits have long eluded it (see Figure 1). The company went public in 1997 at $7.50 a share, and, while the stock peaked at about $16 during the 1999 halcyon days for many ERP vendors, it has ever since edged downward to about $3 a share over the past two years, until the acquisition announcement, when it sharply gained over 30% in a day. Still, despite its recent quite subdued revenues (i.e., 2002 revenues declined 12.5% to $30.2 million from $34.5 million in 2001, while the license revenue decline was quite harsher at 39.4% to $8.6 million in 2002 from $14.2 million in 2001), owing to its astute management of costs amid reduced revenues and yet significant concurrent R&D investment (15% of revenues), have helped cut losses to $690,000 in 2002, from a $4.7 million loss in 2001 (see Figures 1 & 2), which have jointly resulted with a comfortable cash position of over $16 million, Made2Manage' future seems to be much more certain now. Namely, becoming privately-held will more likely allow the inventive vendor to carry on with its "strategic initiatives" that it could possibly not carry through if it remained publicly held. It is also better for the company to be outside the scrutiny of public markets, especially with new regulatory requirements, given the costs and risks of being public have escalated, particularly with the Sarbanes-Oxley rules.

Offering low-cost, products with cutting-edge technology to a narrowly defined market segment has allowed Made2Manage to attract a determined private investor. The generous financial arrangement in these times of venture capital scarcity should speak volumes about the vote of confidence from all involved parties. The vendor has been attempting to show customers a clear and compelling advantage, both in the form of cost savings, and in capabilities that previously had not been available. Should it continue to execute now with secured financial backing, Made2Manage should have a good opportunity within its target market, which is still without a dominant vendor. Although the larger, Tier 1 vendors have long been moving down-market, Made2Manage's target segment is still largely below their radar screen.

Indeed, in the lower-end discrete assembly-to-order (ATO) manufacturing realm, Made2Manage has found a market with good opportunities, and it has developed most of the part-and-parcels it needs to defend its turf. Thus, while the competition and frantic consolidation cannot be discounted for Made2Manage's revenue slump, the customers' no decision' postponing stance still seems to be the vendor's biggest adversary. Its primary competition still comes from North American Tier 2/Tier 3 ERP vendors focused on small-to-medium enterprises (SMEs), all of which Made2Manage can in effect compete against, given its target market focus and/or sole Microsoft technology deployment, and particularly now under Battery Ventures.

In fact the Made2Manage Enterprise Business System now offers a broadly integrated application solution for automating business processes from selling and product design, finance and human resources (HR), customer service and support, through scheduling and distribution, basically, it contains most of the functionality that any company would expect even from a top-tier enterprise applications provider alike. It includes traditional ERP capabilities (i.e., financials, distribution & logistics, procurement, production & shop-floor control, sales, estimating and quoting, quality management and customer service), along with extended enterprise applications such as supply chain management (SCM) (i.e., real-time forecasting, demand planning, infinite and finite capacity planning and scheduling), CRM, and BI. In addition, Made2Manage offers business collaboration tools, all of which are running on the Microsoft .NET platform, including an enterprise portal (M2M VIP) and an integration layer (M2M Link) that enables automated data exchange between disparate systems via XML and Web services technology. Wireless and mobile technology and Web-based training and support have also become Made2Manage's landmark capabilities (see Made2Manage Affirms Its Technological Astuteness). Finally, the ongoing Microsoft .NET transition has resulted with M2M Business Intelligence and M2M Mobile Manager tools (in addition to M2M VIP and M2M Link) all running on the .NET platform, while the M2M ERP backbone remains close behind.

Made2Manage Challenges

However, Made2Manage global market awareness and presence remain quite insignificant in spite of the recent embryonic expansion in the UK via a sole value-added reseller (VAR) agreement with MacroScope Ltd, where the company has localized the functionality for the market. This is further aggravated by the fact that the product continues to exhibit minimal multi-national capabilities and to support only the English language. While this narrow focus has resulted in the delivery of the capabilities within the compact single product line depicted above, it may still result in missed opportunities as companies are increasingly seeking true global providers for their supply chain management and collaboration requirements. Although in the past Made2Manage has intentionally focused on small and midsize manufacturers and distributors in the US, Canada and the UK, the vendor still has an interest in expanding to global markets. In fact, development is currently underway for converting the user interface to Spanish and French (within a few months time bracket), which should be bolstered with its recet financial backing.

Further, M2M's functionality across the board, although broad and well balanced, has not been recognized as a differentiator in the market as the company does not exhibit much of a vertical focus in a manner depicted above by, e.g., Future Three. It basically exhibits a generic ATO, engineer-to-order (ETO), make-to-order (MTO), make-to-stock (MTS) and mixed-mode discrete manufacturing chunks of functionality. Given that tight focus is the order of the day, and given the fact that some of its peers offer a sharp vertical focus even to the precision of four- or even six-digit Standard Industrial Classification (SIC) codes within an industry, Made2Manage's above-mentioned technological advantages may soon be emulated and it will lose its differentiation value.

Although the vendor has not promoted its vertical focus/strengths in the past, it has still guided its marketing, sales and product development strategy vertically to a degree. Specifically, it has chosen to maintain a flexible, but single version (i.e., code base) of the Made2Manage Enterprise Business System in order to cater to the needs and challenges of manufacturers and distributors across certain industries. As a result, it delivers an extensible, flexible solution that can be modified to support a specific operation, as well as meet the needs of an organization as it grows. And, although it does not offer specific versions of the M2M EBS suite developed for specific verticals per se, more than 50% of its customer base falls within the following three SIC groups: 3500's (Industrial and Commercial Machinery), 3400's (Fabricated Metals) and 3600's (Electronics).

The company should, therefore, try to parlay the recent investment to expand its multi-national capabilities and indirect channel, and particularly to interest its VARs into localization, industry specialization and provision of vertical extensions. At least, the vendor has a privilege of not wasting any time on product rationalization like is the case of many impending and/or lengthy ongoing mergers, which has not happened here.

User Recommendations

Existing Made2Manage customers and combined respective Agilisys and Future Tree customers and partners should consider these events as moves toward a more viable position for their IT investment, and treat it in a business as usual manner' but with open eyes. The new owners' motivation in buying the product and vendor was the install base and that's you. Showing interest (and keeping both eyes and ears open) is your part in keeping the relationship the way you want it.

Existing customers contemplating future investments in Agilisys' and/or Made2Manage's solutions need to meet with vendors' executives and understand the management team, the respective company's financial picture and how the vendors' plans fit with customers' future. They should clarify and enforce their support status and the long-term product alliances, product development and migration strategy with the new management.

Users will also benefit from approaching the vendor in case and informing themselves about what the company plans for future service & support of its older product releases are and what would the ramifications of migrating (or not) to its new product offering be. Talk with management and make certain they know your expectations and plans. Measure their commitment to support your technology for a specified time. Keep a close eye on their actions, given that product enhancement and service & support strategy can sometimes change as early as three to six months after the acquisition. Also try to understand their product strategy and look for opportunities in their product portfolio. For example, existing customers should respectively evaluate the possible add-ons emanating from the Agilisys/BRAIN/Future Three merger as a way to add value to their existing applications although preferably by waiting for the combined entity to figure out the product roadmap and to supply a generally available integrated solution.

As usual, users should employ a critical approach in their evaluation of the products, and require the company representative to demonstrate specific technological and germane functional capabilities. At least, Agilisys Automotive should be evaluated to raise the bar for other vendors in the contest in terms of demonstrating their EDI, ANX, release accounting, Just-in-sequence (JIS), repetitive purchasing, integrated barcode printing, lean manufacturing, and other e-Business processes pertinent to the automotive industry.

Also, the products' compliance with the most common industry standards such as Ford MS-9000, Automotive Industry Action Group (AIAG) Manufacturing Assembly Pilot (MAP), or International Automotive Sector Group (IASG) QS-9000 should be probed. The lower tier automotive suppliers in need of a plant-focused ERP system and of getting quickly and affordably on their e-Business feet would be the most likely beneficiaries from evaluating Agilisys Automotive and like products. Also, make sure that the system supports the practices and dictated standards by your likely big-brother trading partners (e.g., General Motors, Ford, Honda, etc.). Sharp industry focus and domain expertise, product interconnectivity, and quick and inexpensive e-commerce enablement have been Future Three and BRAIN's bargaining chips in the game against its peers.

Process manufacturing enterprises from the food, beverage, pharmaceuticals, chemicals, biotechnology, and consumer packaged goods (CPG) industries in the $50 million - $2 billion-a-year revenue range that are looking for a full enterprise solution or just e-commerce or other SCM components should place Agilisys on their initial list of prospective vendors. Mid-sized process manufacturing companies should view it as a single source vendor for all ERP, SCM and significant portions of their e-commerce and CRM needs. Large companies should consider Agilisys as a single source vendor for divisional level systems and as a SCM and plant level provider to corporate level systems. Since requirements differ significantly among different types of process manufacturing companies, users should focus on those functions that make their kind of process industry unique. From Agilisys and any other vendor in the contest, get in-depth demonstrations of those functional areas.

Made2Manage's offering should have an appeal to SMEs that are discrete manufacturers operating in mixed-mode, as well as with less complex projects and repetitive manufacturing functional requirements. Its sweet spot is manufacturers with revenues from $5-50 million (50 to 250 employees, although the system has recently been tested to even 500 users). Preferably but not necessarily, single-site North America and UK-based discrete ATO manufacturing companies and their divisions with up to $250 million-a-year revenue range and up to 200 concurrent users per site, should shortlist the company's value proposition, bearing in mind the competitive landscape.

Although Made2Manage essentially operates across many industries with no vertical focus per se, the industries that would most likely benefit from using its products (based on the company's success and references) are electronics, consumer products, industrial machinery, fabricated products, automotive supplier, computer and office equipment, medical equipment suppliers, transportation equipment, and rubber and plastic products. Over 75% of its customer base falls into the following SIC groups: 1) 3500's - (Industrial & Commercial Machinery/Equipment Manufacturers), 2) 3400's - (Fabricated Metal Products), 3) 3600's - (Electronic and other Electronic Equipment), 4) 3800's - (Instruments and Related Equipment), 5) 3000's - (Rubber/Miscellaneous Plastics Products), 6) 3700's - (Transportation Equipment), and 7) 2500's - (Furniture Fixtures). Organizations seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may want to inquire about the M2M's hosted offering. Fast expanding, multi-national and companies looking for a cross-platform support and deeper vertical functionality may benefit from evaluating other products at this stage.

Generally speaking, potential and existing users should be aware of the fact that it is a long journey from vision to execution notwithstanding. Therefore, prod new company executives about firmer product availability dates and bear in mind typical issues associated with immature product releases.

Very detailed information about the Made2Manage Enterprise Business System and the Agilisys ERP product is contained in the ERP Evaluation Center at http://www.erpevaluation.com/

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